Market analysis post ECB policy meeting
04/Dec/2014 • Currency Updates•
Today the European Central Bank (ECB) disappointed our expectations for further monetary easing measures. While it did reaffirm its intention to expand the balance sheet back to the maximum level witnessed in 2012, and it stated that its staff have “stepped up technical preparations” for further programs, no concrete details were offered.
The general tone of the press conference was mixed. Projections for growth and inflation were slashed yet again, and ECB President Mario Draghi warned that the inflation forecasts did not reflect the latest fall in oil prices. The language used to describe the future expansion of the balance sheet was changed from “expected”, to a stronger “intended”; however, the move for change was not unanimous, which leads us to believe the Bundesbank hawkishness is still a factor in the Council. Despite this, Draghi bluntly stated that the ECB does not need unanimity to act.
Although FX moves during the conference were volatile, traders chose to focus primarily on Draghi’s refusal to set any specific date for further monetary easing measures, as he stated only that the need for them will be “reassessed in 2015”. The Euro rallied, although lost some steam later in the press conference on word that the ECB would consider purchases of any and all assets, except precious metals.
The subsequent milestone for monetary policy in the Eurozone is next week when the take-up of European banks of the second Targeted longer-term refinancing operation (TLTRO) offer of ultra-cheap ECB funding is announced.
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